Tufin Software Technologies Ltd: Small Cybersecurity Stock Could Double

Tufin Software Technologies Ltd: Small Cybersecurity Stock Could DoubleTUFN Stock Could Be Next Great Cybersecurity Play

While the Nasdaq has rallied by more than 50% from its March lows, there are many small technology stocks that are well below their pre-COVID-19 levels. Some investors may avoid these battered stocks, but the great risk/reward opportunity is simply too attractive to ignore.

That’s the case with Boston-based Tufin Software Technologies Ltd (NASDAQ:TUFN), a developer of cloud software to help safeguard critical network infrastructure from invasion.

We are constantly hearing about cybersecurity intrusions into enterprise and government networks. This will not change and will only accelerate, which is why I like companies like Tufin Software Technologies.

But while Tufin Software Technologies should be rewarded by the market, TUFN stock has been battered, well below its initial public offering price of $14.00 on April 11, 2019 and is down 42% in 2020.

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A breakout at channel resistance at $11.00 could vault TUFN stock toward the January levels at around $17.00.

Chart courtesy of StockCharts.com

Trading at 67% below its high of $31.04 in July 2019, Tufin Software Technologies stock has fantastic upside potential for the contrarian investor.

Revenue Ramps Up to Move Tufin Software Technologies Ltd Toward Profitability

The financial history for Tufin Software Technologies as a public company is limited, but we have been seeing encouraging signs.

Revenues have grown in two consecutive years to a record in 2019.

Fiscal Year Revenues (Millions) Growth
2017 $64.5
2018 $85.0 31.7%
2019 $103.3 21.5%

(Source: “Tufin Software Technologies Ltd.MarketWatch, last accessed July 24, 2020.)

But given the pandemic, Tufin Software Technologies is estimated to see revenues contract 5.9% to $97.2 million this year, followed by a strong bounce of 18.8% to $115.5 million in 2021. (Source: “Tufin Software Technologies Ltd. (TUFN),” Yahoo! Finance, last accessed July 23, 2020.)

TUFN has yet to turn any profits on either a generally accepted accounting principles (GAAP) or adjusted basis, but watch for the losses to narrow as revenues ramp higher.

Fiscal Year GAAP Diluted Earnings Per Share Growth
2017 -$0.09
2018 -$0.13 -52.6%
2019 -$1.04 -689.9%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Tufin Software Technologies Ltd is expected to report a rise in its loss to $0.94 per diluted share this year but narrow that to a loss of $0.69 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

Tufin Software Technologies managed to squeeze out positive free cash flow (FCF) in 2018, but given the stage of the company, I don’t expect steady positive FCF for at least a few years.

Fiscal Year Free Cash Flow (Millions) Growth
2017 -$1.3
2018 $2.9 323.0%
2019 -$15.1 -612.3%

(Source: MarketWatch, op. cit.)

The company’s balance sheet is strong, which will allow Tufin time to ramp up its revenues and not worry about financing. The company has strong working capital, debt of $23.3 million, and cash of $117.5 million—or roughly $3.30 per share. (Source: Yahoo! Finance, op. cit.)

Analyst Take

My bullish thesis for Tufin Software Technologies Ltd is based on the strong tailwinds in the cybersecurity software segment. While there are far bigger players in the sector, there will be enough business for smaller players like Tufin.

As such, I wouldn’t be surprised if Tufin Software Technologies stock returns a double.